Midfield Industries is entering the capital market on
The company, an organised player in the industrial packaging segment, manufactures steel strapping, seals, angle boards, collated nails and also offers end-to-end packing solutions, to companies in the steel, aluminium, glass, jute and paper industry. It has an installed capacity of 12,000 MW per annum of steel strapping, which accounts for about 65% of its total sales.
The company has a customer base of over 500 clients, however it is highly dependent on a few of them, as top 10 clients accounted for 48% of its sales in FY10, 43% in FY09 and 49% in FY08.
The company plans to expand its existing manufacturing facilities at
Other object of the issue include meeting working capital needs (Rs. 5.4 crore) and general corporate purposes. The benefits due to capacity augmentation will be reflected in the company's financials only from FY12 onwards.
The company has entered into a 49:51 joint venture with Spanish company Centaur Equipos de Flejado, for establishing steel strapping manufacturing facility in India (same line of business as its existing one) to supply to Centaur in Europe. More than 3 years have elapsed, but this JV has not yet commenced any operations. Also, as per the JV agreement, the company will be selling Centaur's products in
The company's business has been growing at the steady pace. For FY10, it reported sales of Rs. 90 crores and PAT of Rs. 8 crores, earning EPS of Rs. 9.8. For FY09, it had reported sales of Rs. 83 crore with net profit of Rs. 6 crore and EPS of Rs. 7.1. However, it has defaulted in payment of 6 monthly instalments aggregating to Rs. 1.1 crore, since December 2009.
The company has failed to manage its working capital effectively - it is compelled to offer longer credit period to its customers, but does not enjoy as favourable credit terms from its suppliers. Nearly 8 months of its FY10 sales were locked in outstanding debtors of Rs. 58.4 crore, as on
At the lower end of the price band, the company is issuing shares at a PE multiple of 12.9 times, based on FY10 earnings, and at 13.6 times on the upper end of the price band. There is no justification for such a high PE multiple when the industry PE is less than 10 times and most of the smaller players, like Midfield, are ruling in the single digit PE multiples.
The company faces severe competition both from multi-nationals like ITW Signode, operating on a large scale in
We give a thumbs down to the issue, as a company clocking annual turnover of Rs. 90 crores in steel strapping and related packaging materials, does not deserve an enterprise value (market cap + debt - cash) of over Rs. 200 crores, arrived at the lower end of the price band of 126.